sentimenTrader Blog


2018-01-20 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Never more leveraged

Assets in leveraged long ETFs are going parabolic while leveraged inverse funds dwindle. There is now almost $4 in long funds for every $1 in inverse funds, a record exposure level.

Relative to the gains in the S&P 500, those ETFs are also showing “irrational” growth.

Junk funds see exodus

High-yield (junk) bond ETFs have seen the largest outflow of money in almost a year, nearly 7% of assets in a week.

Fund flows can be inconsistent, but work well in these funds. Prior times there was such a large, concentrated outflow, the funds rallied over the medium-term.

Money managers can’t get enough oil

This week, money managers became the most lopsidedly bullish oil they’ve ever been. Previous times they were so aggressive, oil fell back, especially the USO fund.

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers are now at or near record long exposure again in 2-year and 5-year Treasuries. In the past, that has consistently led to rallies in the short end of the Treasury curve, but did not the last time, at the end of October.

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2018-01-18 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

A rare burst of new highs

Most of the major indexes and sectors had more than 25% of their stocks hit a 52-week high on Tuesday. Only Staples and Utilities saw fewer than 10% of their stocks hit a new high. On average across indexes and sectors, 27% of stocks reached a fresh high, among the best average readings since 1990.

Similar surges led to poor short-term returns, and excellent long-term ones.

Where da bears at?

The Investor’s Intelligence survey of newsletter showed the fewest bears in 30 years this week. Prior to 1987, the survey was more volatile, and there were more than 50 weeks with fewer bears. Those weeks led to poor returns in the S&P 500, while sectors like Utilities and Energy held up very well.

Reversing the reversal

The S&P 500 futures completely reversed its negative reversal from Tuesday. This is adding a rarity on top of a rarity, and future returns were mixed, at least until 3 months later when they were good.

Upside volatility

While the VIX is often referred to as the “fear gauge”, it simply measures how options traders are pricing moves over the next 30 days. It almost always increases as stocks decline as options traders bid up the price of put options. But in rare cases, the VIX can rise along with stocks for the same reason.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-17 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Momentum is enjoying its turn

The highest momentum stocks have nearly doubled the gains in the S&P 500 over the past year. That’s among their best relative performance in 20 years.

If we zoom out and look at the past 90 years, there were periods with much relative returns in momentum stocks. Many of those outstanding periods for momentum occurred when coming out of extended downtrends. When occurring after years of a bull market, stampedes into momentum stocks led to below-average returns.

Biotech got burned

After a spectacular 2017 and early 2018, leading to excellent gains and new highs, biotech stocks were among the largest losers on Tuesday, following a new high last week.

Similar reversals led to volatile returns, with a modest negative bias in the short-term, less so long-term.

Whoa, Nellie

Small options traders spent 40% of their volume buying speculative call options last week, the most since 2011. Since the 2009 bottom, there have been 5 other weeks with this much enthusiasm. According to the Backtest Engine, two weeks later the S&P was lower each time by an average of 1%.

Rejected

Stocks were on track for one of the largest negative reversals in years on Tuesday. While one-day reversals have a sketchy predictive record, the one being carved out in the S&P had led to consistent weakness, but a late recovery alleviated many of the most negative precedents.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-17 | Jason Goepfert | Comments

For those who don’t follow the premium Twitter account, which you have access to if you’re receiving this message, following are some of the studies and indicators that were posted today. If you’d like to follow the Twitter account, please request to follow @SenTrader_Prem on Twitter then send an email to admin at sentimentrader dot com […]

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2018-01-12 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

The most persistent trend

The persistence of the S&P’s uptrend over the past year is among the highest in its history. Same goes for the past 3, 5, and 10 years.

When we look at the 5 comparable trends, using the 200-day average as a guide was helpful.

Rubber band

The S&P is more than above its 200-day average for the first time in years. That’s not unusual following a bear market, but it is when trading at a multi-year high.

The others led to either persistent weakness, or not at all, with no real in-between markets.

Where’s the money?

Investors pulled more than $22 billion from equity mutual funds and ETFs in early January. That’s a new record outflow going back more than a decade. It doesn’t fit with virtually every other indicator we follow.

Record level of extremes

More than 52% of our indicators are now at an optimistic extreme. None of them are at a pessimistic extreme.

Good sign for natty

In the December 28 report, we looked at big rallies in natural gas from a multi-month low.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-11 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Yield inversion

The yield on 2-year Treasury Notes is now higher than the dividend yield on the S&P 500. That’s the first time in 10 years, causing consternation among some who only look back that far, since it preceded the financial crisis.

But going back to the 1930’s, this was not uncommon and the only similar scenario led to a long-term bull market.

Utilities suffer a correction

The Dow Utilities index has dropped more than 10% from its recent high, entering (arbitrarily defined) correction territory. Yet the Dow Industrials have brushed that off and continued to make new highs in recent days.

That kind of disconnect has occurred only a handful of times, and has not been a good sign, especially for Utilities.

Good sign for energy

In the December 27 report, we looked at a big positive thrust in breadth in the Energy sector. In the past, if buyers continued to persist over the next two weeks, it was an excellent indicator for longer-term returns.

Video tutorial

For those who haven’t tried the Backtest Engine, we posted a video that goes over a simple test, looking at times there was an extreme number of new 52-week highs in Industrial stocks. It’s a brief introduction to using the feature to gain more insight as to what an indicator is suggesting. Almost all indicators and models on the site are available for testing.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-10 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

The S&P’s consistent, rapid rally

The most important index in the world has rallied consistently for the past 1, 3, and 6 months. It has also picked up its gains, nearing or exceeding its upper Bollinger Band on daily, weekly, and monthly time frames.

Similar markets led to some shorter-term pullbacks, with all but one culminating in v-shaped bottoms.

Industrial-strength momentum

The Industrials sector has rallied almost every day for the past three weeks…and the three weeks prior to that. During the past 30 days, there have been only 5 down days, a remarkable streak not seen in 30 years.

Similar buying clusters at a new high have led to consistent gains going forward.

Here we go with the odd readings again

The NYSE Up Issues Ratio was less than 43% on Monday, well below average for a day when the S&P 500 rose at least marginally and closed at a multi-year high.

More

Adding to the oddities, the VIX “fear gauge” also rose today.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-09 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Global synchronized momentum

Most major stock markets are not only rallying, they’re showing extreme momentum. The weekly Relative Strength Index across 6 major global indexes is now the highest in history.

High readings in that indicator suggest overbought conditions, but extremely high readings suggest momentum. Other times it hit an extremely high level, markets did well, especially the MSCI World Index.

It’ll never go down

Over the past few days, there has been a jump in presidential celebration about the stock market. There has also been skyrocketing interest from the pubic about the potential for a melt up.

The only time that we’ve seen a spike in both displays of supreme confidence was mid-October last year. It’s hard to blame them, as the S&P has managed 5 consecutive all-time highs for the first time since October.

More bandwagon-jumping

In late December, we noted that Wall Street analysts were busying upgrading the price targets of the S&P 500 stocks they cover.

Volatility buyers

The Total Put/Call Ratio dropped to a low level on Monday, thanks to heavy trading in call options on the VIX. The ratio for the VIX dropped below 0.10 for one of the lowest readings in years.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-08 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

So goes January…or August

A popular rule of thumb suggests that how stocks start a New Year means something for the full year. It correctly predicts the return over the next year about 60% of the time.

That’s likely a statistical fluke, and other weeks have just as good, or better, predictive record.

Material momentum

A rally in Materials stocks over the past couple of weeks has driven most of them to 52-week highs. For the first time since 2007, more than half the stocks in the sector reached a new high together.

Since 1990, that has been a signal of buying exhaustion.

The not-too-hot uptrend has ended

The S&P went more than 380 days above its 200-day average, but not more than 10% above it.

For the first time ever, that kind of streak ended with a move to the upside. The only two time periods that had a similar streak ended with a move below the 200-day.

Payroll report

Since 2014, when the S&P closed at a new high on the day of the Nonfarm Payroll report, over the next week it added to its gains only 22% of the time.

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers are still heavily long the agriculture contracts that make up the DBA fund.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-01-05 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

A(nother) historic streak

After setting so many different records last year, 2018 is on track to score even more. Among them, the major indexes haven’t been more than 5% from a 52-week high for nearly 400 days (more than 450 days if we exclude a single day last June).

There were 3 other time periods that matched what we’re seeing now, and after each of them, the S&P 500 declined more than 7% over a period of 30-40 days.

All in, part deux

Individual investors have the most stock exposure since 2000, and their short-term optimism is now rising. It has done an about-face during the past two months, going from pessimism to the 2nd-highest optimism since the 2009 low.

The AAII Bull Ratio is nearly 80%, a level that has led to poor annualized returns. The times when it got this extreme with stocks at a high, future gains were erased.

Payroll report

The widely-watched Nonfarm Payroll report is on Friday. When the December report has been released (the first week in January), the S&P 500 has rallied over the next two weeks 40% of the time.

Rising risk

For stocks, the combined Short-Term Risk Level and Medium-Term Risk Level is 13.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


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